Fair Value Measurements

12 Months Ended

Sep. 30, 2013

Note 7 - Fair Value Measurements

The three levels of inputs used to measure fair value are as follows:

·	Level 1 – Quoted prices in active markets for identical assets and liabilities.

·	Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

·	Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company’s financial assets that are measured at fair value on a recurring basis are measured using Level 1 and Level 2 inputs. However, the Company records the carrying value of its private equity investments at lower of cost or fair market value which is measured using Level 3 inputs.

The Company has included a tabular disclosure for financial assets that are measured at fair value on a recurring basis in the consolidated balance sheet as of September 30, 2013 and 2012. The Company holds no financial liabilities that are measured at fair value on a recurring basis.

	September 30, 2013
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Money market accounts	$	26,845,000	$	0	$	0	$	26,845,000
Certificates of deposit	0		4,340,000		0		4,340,000
Equity investments (A)	0		0		8,875,000		8,875,000
Assets held in trust for deferred compensation plan (B)	490,000		0		0		490,000
Total	$	27,335,000	$	4,340,000	$	8,875,000	$	40,550,000

	September 30, 2012
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Money market accounts	$	28,591,000	$	0	$	0	$	28,591,000
Certificates of deposit	0		4,496,000		0		4,496,000
Equity investments (A)	0		0		5,166,000		5,166,000
Assets held in trust for deferred compensation plan (B)	496,000		0		0		496,000
Total	$	29,087,000	$	4,496,000	$	5,166,000	$	38,749,000

(A) Equity investments are made up of stock in three privately held companies.

(B) Assets held in trust for deferred compensation plan are made up of bonds, equity and money market funds that are actively traded.

These assets are held in a Rabbi Trust for the benefit of deferred employee compensation not available for distribution under the Plan.

Reconciliation of financial assets measured at fair value on a recurring basis using Level 3 inputs for the years ended September 30, 2013 and 2012 is as follows:

	Fair Value September 30, 2012	Realized (net of fees)	Change in Unrealized Estimated Value		Decrease due to impairment of assets		Increase due to purchase of shares	Decrease in cost basis due to sale		Decrease due to transfer from Level 3 to Level 1	Fair Value September 30, 2013
Level 3 only Equity investments	$5,166,000	$ (112,000)	$	3,821,000	$	0	$ 0	$	0	$ 0	$8,875,000

	Fair Value September 30, 2011	Realized (net of fees)	Change in Unrealized Estimated Value		Decrease due to impairment of assets		Increase due to purchase of shares	Decrease in cost basis due to sale		Decrease due to transfer from Level 3 to Level 1	Fair Value September 30, 2012
Level 3 only Equity investments	$2,145,000	$ (28,000)	$2,887,000		$ 0		$ 162,000	$ 0		$ 0	$5,166,000

In accordance with the provisions of ASC Topic 320, “Accounting for Certain Investments in Debt and Equity Securities,” marketable equity investments (equity investments having a readily determinable fair value) would have a carrying value and a fair value based on quoted market prices. The Company’s practice is to sell its marketable equity investments upon the expiration of the lock-up period.

Equity investments in private companies consist primarily of small investments in approximately three private companies. Preferred stock investments are carried at the lower of cost or fair market value in the Company’s financial statements. The carrying value of equity investments in private companies is $697,000 and the fair market value measured using Level 3 inputs is $8,875,000, net of sharing. These investments are subject to significant volatility and are difficult to value. The fair value of the Company’s equity investments in private companies was determined in consultation with Windspeed based on the market approach, including, but not limited to, quoted trading levels for publicly-traded securities in similar industries and/or markets, industry and company multiples, industry acceptance in the market place, liquidity discounts due to lock ups, estimated revenue, and customer, product and market share growth by the respective companies in the portfolio. Substantially all of these factors are outside the control of the Company and are subject to significant volatility. There can be no assurance that the Company will be able to realize the estimated fair market value. Furthermore, as of September 30, 2013, the total portfolio of three companies which has an estimated fair market value of $8,875,000 is subject to significant concentration risk, as follows: 99% of such value is in two individual companies, and approximately 93% of such value is in one individual company.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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